Follow our free guide to form an LLC in Arizona
- Pros and Cons of Forming an LLC in Arizona
- Starting Your Arizona LLC
- Maintaining Your Arizona LLC
- Additional Arizona Resources
If you’re thinking about forming an LLC in Arizona, read through our guide covering the pros, cons, and how to start and maintain your Arizona LLC.
Pros and Cons of Forming an LLC in Arizona
Major Metro Area (Phoenix)
Phoenix is the fifth largest city in the nation, and its exceptional 1.95% growth is more than double that of Houston, Los Angeles, and New York City. The Phoenix/Mesa/Scottsdale metro area has seen a substantial increase in the past few years, from $195 million in 2012 to almost $245 million in 2017.
No Corporate Taxes for LLCs
Arizona does not require LLCs to pay any corporate or franchise tax. The only taxes owed by LLC members are state and federal income taxes.
No Annual Report Due
Arizona is one of the few states in the country that does not require LLCs to file an annual report. Not all businesses are exempt from this task—corporations and non-profit organizations must still submit an annual report.
Less Privacy for Owners
While the owners of an LLC are not listed in the filing paperwork, Arizona’s publication rule for new businesses demands a full disclosure of either the LLC manager(s) or all of the members. The name and contact information of each manager/member must be listed.
Arizona is one of the few states that requires new businesses to publish a Notice of Formation in a designated newspaper for three consecutive weeks. This must be completed within 60 days of forming the business, and the cost can run between $30 to over $300.
Cost of Doing Business
- $50 filing fee/ no annual fee
- $30-$300 Publication Fee
- No corporate tax
Starting Your Arizona LLC
You might assume that forming an LLC in Arizona is a difficult task, but the first part of the process can be done in a few steps—and it is much less confusing when you have professional help.
The steps needed to build your Arizona LLC are:
- Step 1: Name your LLC
- Step 2: Establish Ownership of the LLC
- Step 3: Choose a Statutory Agent
- Step 4: File the Articles of Organization
- Step 5: Complete the Publication Requirement
- Step 6: Create your Operating Agreement
- Step 7: Register for an EIN
Step 1: Name Your Arizona LLC
Finding a name for your new business is an important first step in forming your Arizona LLC. As you narrow down the list of possible company names, there are a few guidelines to keep in mind:
- The official name of your business must end with: Limited Liability Company, Limited Company, LLC, or L.L.C.
- Your business name cannot be intentionally misleading to consumers
- The name of your new LLC must not be similar to another organization’s name/trademark
Restrictions exist regarding the name of your LLC, depending on the state where you are starting your business.
A few examples include:
- “Lottery” and “Bank” are ineligible for use (any state)
- Terms that represent educational or Veterans’ organizations are restricted
- Terms related to the Armed Forces or civil servants (police, EMT, fire)
LLC business names associated with government and/or financial entities are not always restricted—it depends on the state laws. Additional paperwork may be required.
In addition to choosing a name for your LLC, creating an online presence is equally important in the current culture. Check domain name availability with your chosen online web services site.
Step 2: Establish Ownership
The owners of an LLC are known as either as members or managers, depending on the chosen management structure of the business.
LLCs have two management structures:
- Member-managed: Ownership of business is divided among the members and all parties receive portions of the profits.
- Manager-managed: The appointed manager is the main operator and the members are passive investors who are not actively involved in the daily business operations.
After you have selected a name for your business, you then need to choose a management structure and designate the members of the LLC. The rules concerning LLC ownership in Arizona include:
Required Number of Members
Arizona LLCs must have at least one member or manager in order to form a business.
Member Disclosure Requirements
An organizer may sign and file the Articles of Organization in place of the LLC members.
LLC members in Arizona may be of any age. An organizer must be at least 18 years old.
There are no residency restrictions imposed on LLC members in Arizona.
Step 3: Find a Statutory Agent in Arizona
The statutory agent, also known as a registered agent, is necessary for all LLCs formed in Arizona. Your business cannot be official without filling this position.
What is a statutory agent?
A statutory agent is a person or business who is authorized to accept official government notices (including the Secretary of State) and service of process notices on behalf of the LLC.
Why do you need a statutory agent?
Whenever you start an LLC in Arizona, the law requires you to appoint a statutory agent so that the state government has a consistent contact person for your business. The agent is lawfully expected to be available during standard business hours.
Who can be a statutory agent in Arizona?
The requirements to be a statutory agent are as follows:
- A resident with a physical address in Arizona
- An LLC or corporation that is licensed to conduct business in Arizona
It is also possible for you to be your own statutory agent as long as you use a physical address.
Why you may not want to be your own statutory agent
LLC business owners who choose to be their own registered agent are subject to release their personal information to the public, including full name, address, and phone number.
Tip: Avoid the hassles that come with being your own Statutory agent and choose Swyft Filings to fill the Statutory agent needs for small businesses in Arizona. Find more information here.
Step 4: File the Articles of Organization
One of the most important steps involved in officially (and legally) forming an LLC in Arizona is filing the Articles of Organization with the Secretary of State. This vital document includes the following:
- The type of business entity (LLC or PLLC)
- The name of the LLC
- The physical address of the business
- The name of the party/organizer filing the paperwork
- The name and location of the statutory agent
- The chosen management structure of the LLC
Additional Arizona Filing Requirements - PLLC
Arizona also allows professional service businesses to form a specific type of LLC known as a Professional Limited Liability Company (PLLC).
Typical professions that form a PLLC:
- Professional Counselors and Psychologists
- Architects and Engineers
- Social Workers
A few points to consider:
- All members of the PLLC must be licensed in the profession of the business.
- The PLLC is allowed to provide services outside of the business’s original intent.
- The members are still subject to whichever licensing boards govern the PLLC’s profession.
Step 5: Create an LLC Operating Agreement
An Operating Agreement is not required to form an LLC in Arizona, but it is still considered a vital necessity for any successful business to add structure and project a professional attitude.
A recent change to Arizona LLC laws will soon affect the contents of the Operating Agreement, as well as its mandatory status with the state. The new law will go into effect in September 2019.
What is an LLC Operating Agreement?
The LLC Operating Agreement is an in-house legal document that defines the rights and responsibilities of each person involved in the business, as well as the details involving how the business will operate.
Why do I need an LLC Operating Agreement?
Because the LLC Operating Agreement defines the roles of the business’s members and provides direction for daily operations, the document ensures stability and structure to the LLC and reduces future disputes.
What goes into an LLC Operating Agreement?
While there is not a set rule of what must be included in your LLC operating Agreement, most documents include the following the information:
- Designation of the members/managers
- Initial capital contributions of the members
- Voting designations and percentages
- Member transfer/addition rules and restrictions
- Distribution of profits
Tip: Get a customized LLC Operating Agreement for your small business with Swyft Filings. Add structure to your LLC now.
Step 6: Complete the Publication Requirement
Arizona is one of a few states that requires all newly formed LLC business owners to publish notification of LLC formation in two different newspapers for three consecutive weeks. The time frame for completion is 60 days from receiving notice from the Arizona Corporations Commission.
Important to Know:
- The newspapers must be chosen from a designated list
- Businesses in Maricopa and Pima counties are exempt
- The fees vary—typical cost ranges from $30 to $300
- Upon completion, the publication will send an Affidavit of Publication
Please Note: the Affidavit of Publication must remain in the LLC’s business records.
Information included in the Notice of LLC Formation:
- The name and address of the LLC
- The name and location of the statutory agent
- The chosen management structure of the LLC
- The name and contact information of the LLC manager(s) OR
- The name and contact information of each LLC member
Step 7: Obtain an EIN
The state of Arizona requires an EIN for any business that has/will have employees. Additionally, most banks and financial institutions require the EIN open any accounts.
What is an EIN?
An EIN, or Employer Identification Number, is a nine-digit number assigned to your business for the Internal Revenue Service (IRS). The EIN identifies your business with the government much like a personal Social Security number.
What business entities need an EIN?
The types of business entities that need an EIN include:
- An LLC with employees (even if owned by one person)
- An LLC with more than one member
- A partnership (LLC or C-corp)
Please Note: A sole proprietorship is the only business entity that is not required to have an EIN.
Why is an EIN necessary?
The more common reasons you would need an EIN are:
- To hire employees
- To open a bank account in the U.S.
- To file your company’s taxes
- To pay independent contractors
Please Note: If you collect revenue of any kind through a business entity, you will need an EIN.
Swyft Filings offers EIN services for small businesses in Arizona. Find more information here.
Maintaining Your Arizona LLC
After setting up your Arizona LLC, there is another set of steps that will help move your business forward and stay compliant:
- Step 1: Register for all necessary taxes in Arizona
- Step 2: Apply for the required permits and licenses
- Step 3: Request a Certificate of Good Standing
Step 1: Register for Arizona State Taxes
Arizona is one of the few states that does not require LLCs to pay a corporate or franchise tax/annual fee tax. Other taxes your Arizona LLC may need to pay include:
- Transaction Privilege Tax
- Employee Withholding Tax
- Unemployment Tax
The Transaction Privilege Tax (TPT) is paid by businesses that sell physical goods or a taxable service; vendors are paying the state for the ability to conduct business in Arizona. A license is also required.
Regardless of industry, all LLC members must pay state and federal income taxes on their earnings. The state income tax rate for Arizona ranges from 2.59% to 4.54%.
Step 2: Obtain Business Licenses and Permits
The licenses and permits required for an LLC in Arizona can vary, depending on a number of variables:
- Location (city and county)
- Type of Business
Certain LLC businesses in Arizona will need a Transaction Privilege Tax license :
- Any business selling physical goods
- Any business that sells taxable services
- Hotels, motels, and property rentals
Tip: If you would like to see more in-depth information on licenses and permits, please feel free to visit the content in our learning library that covers business licenses and permits.
Step 3: Obtain a Certificate of Good Standing
After your Arizona LLC has been formed and is ready for business, there is still one last step—getting a Certificate of Good Standing.
The majority of financial institutions and businesses may require proof that your new business is fully compliant with the state. Obtaining a Certificate of Good Standing provides your LLC with a “seal of approval” from the Secretary of State.
What is a Certificate of Good Standing?
The Certificate of Good Standing is an official notification from the government agency that confirms your entity has been properly filed and is still in compliance.
Why should I obtain a Certificate of Good Standing?
In the course of conducting business, there will be times when you will need to prove that your business is properly filed and fully compliant with the state. Many banks and businesses will request a Certificate of Good Standing as part of the due diligence process (especially during major transactions).
For the most part, any time you need to show your business is properly filed and fully compliant, you will likely need to present a Certificate of Good Standing.
Swyft Filings can create a Certificate of Good Standing for your Arizona LLC. Click here for more information.